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San Francisco Fed: Official China GDP Data is OK

China’s National Bureau of Statistics has supporters in San Francisco. Dallas is another story.

The accuracy of China’s economic data continues to be the subject of controversy. Many alternative indicators appear to point to gross domestic product growth for 2012 below the 7.8% rate reported by the government.

That discrepancy prompted John Fernald, Israel Malkin, and Mark Spiegel, researchers at the San Francisco Fed, to take a detailed look at the numbers. They compared commonly cited alternative indicators of economic activity – like electricity production – with China’s GDP data to look for signs of exaggeration in the official growth rate.

To get started, Mr. Fernald and his co-authors created two separate growth indexes based on alternative Chinese data:

-A Li Keqiang index based on the suggestion from China’s new premier that rail freight, electricity output and loan disbursement were his preferred way to track growth

To guard against the possibility that the alternative Chinese data might have been manipulated, they created two more indexes based on data from China’s trading partners.

-A “trio” index based on trade data from the U.S., Japan and Europe, which together account for roughly half of global exports from China.

-A “world” index measuring overall Chinese trade activity based on data from the International Monetary Fund.

The next step was to determine the statistical relationship between the alternative growth indexes and China’s official GDP numbers by comparing them from 2000 through the third quarter of 2009. Based on that relationship, the authors used the performance of alternative indicators from the fourth quarter of 2009 to the end of 2012 to estimate what the official GDP growth rate should be.

The result: The forecast of GDP growth from the end of 2009 to the end of 2012 based on the alternative indicators closely matched the official GDP growth rate reported by the NBS. The conclusion from the authors: “We find no evidence that China’s slowdown in 2012 was greater than officially reported.”

That’s a sharp contrast with analysis from another arm of the Federal Reserve system.

In 2012, researchers at the Dallas Fed looked at the relationship between a sharp deceleration in China’s electricity consumption and more moderate slowdown in industrial output. Their conclusion: “China might have overstated its 2012 industrial production data to mask the economy’s weakness. In other words, the slowdown in China could be worse than the official data indicate.”

With research based on different approaches, and results pointing in opposite directions, the San Francisco and Dallas Feds’ conclusions are unlikely to end the debate on the reliability of China’s data. But the NBS will be relieved that at least one serious set of number crunchers is in their corner.